A person learns different skills during his/her lifetime to make his/her life continuously better. Every person tries to learn skills which are relevant in his or her profession. A software engineer will be more inclined to develop skills related to programming languages, artificial intelligence, etc. A salesman will develop the skill of convincing people and so on. However, there are some common skills such as good verbal skill which can benefit persons belonging to every profession. One such skill is investing your money properly. In this blog, I will talk about the skill of investing and why it is important to learn investing from the financial aspect.

Is there anything to learn for investing money

In a very general scenario, people are never properly taught about the existing financial institutions and markets. What are the different asset classes? What are the risk and reward assosiated with them? How to choose among different asset classes and many other things.

People generally tend to assosiate investing with stock markets only which indeed is one of the best ways to invest your money. However, there are many other ways out there, the most widely used being a simple Savings account.

Even though the people are aware of Stock markets, few people dare to enter it and those who actually does, just start purchasing stocks without properly studying it or learning to invest. Most of the investments by common people are made by tips from any relative or friend or stock experts on Television. Sometimes people make money and are happy but then there comes a time when they eventually lose money. Suddenly they start blaming the stock market itself. They start calling it nothing more than gambling. In some cases, when the loss is big, they take an oath to never ever look towards the stock market again. Is it really the fault of stock market?

Well No! The biggest culprit is the person himself who entered the market without learning to invest. Jumping into the stock market without learning to invest is like driving a car on a highway without learning to drive. You may keep driving safely for sometime but there is a high probablity that you will face an accident. And that accident may be fatal.

Am I suitable to invest money

Many times I have seen people avoiding investing on the ground that they have very little money and they think that investing is for big business people having millions of dollars. People also say that investing little amount of money will make very limited or no difference at all. These people are totally wrong. The process of investing multiplies your money in a percentage manner.

For example, if you invested Rs. 10000 and got a return of 10%, you made a profit of Rs. 1000. Some millionaire may get large amount of profit because he invested large amount of money. But the thing is, you made some money as profit, which is certainly better than not investing and making no profit.

Some other people may say that, they don’t need to invest to make more money. They will get better paying jobs and that will make it even. In this case, I would again like to say that investing is just a way to multiply your money whatever the amount you have. Getting a better paying job is definitely a good thing especially if you enjoy your work too. Still you may multiply that money by investing it.

The power of time

Probably the biggest thing that stops people from investing or taking it seriously is the fact that most people fail to realize the power of TIME or Compounding. Investing means putting your money into some asset for a long time. In accounting, a period of more than 1 year is said to be long term and anything less than that is short term. However, to actually reap the benefits of investing, you may need to stay invested for much longer than a year.

Let’s take an example, suppose you save Rs. 10,000 per month from your salary. Yearly, let’s assume that you are able to save Rs, 1,00,000 (Rs. 20,000 goes in some yearly expenses). Let’s assume your salary and living standard remain same for the next 20 years (this is a bad assumption but it’s just to explain the power of time). You chose to invest all your savings and are able to get a return of 15% every year.

At the end of 20 years, your hard earned money will turn to an amount of roughly Rs, 1,02,00,000. That’s more than a crore. Just compare that with the amount of Rs. 20,00,000 had you not invested your money. Also, for a moment assume that you stay invested for a period of 30 years, in that case you will have an amount of roughly Rs. 4,35,00,000. That’s a more rapid growth in the last 10 years. This is the power of time and compounding. However, in a real situation, you may need to withdraw money for some special occasions like purchasing a house or a car and your whole amount may not reach to that amount. But we have also assumed that your salary and savings remain constant for the whole period. In reality, your salary and savings may increase over time and you may possess even larger amount at the end of 20 or 30 years.

Let’s take another example, there are two neighbours Mr. A and Mr. B. They have grown up together and at the age of 25 they both land up the same kind of jobs. Their salary is Rs. 10,00,000 per annum and let’s assume that their salary remains the same for the next 25 years.

Now, Mr. A decides to save and invest an amount of Rs. 1,00,000 every year. But Mr. B spends all his money. He purchases a car, goes on frequent vacation, etc. After 10 years, at the age of 35, Mr. A stops saving or investing any more money but keeps his previous savings invested. Also, Mr. B suddenly realizes the importance of saving and starts to invest Rs. 2,00,000 every year (double the amount of Mr. A). This keeps on going for the next 15 years until they both turn 50.

Assume that both Mr. A and Mr. B were equally good investor and they got a return of 15% every year on their investment. Now, let’s compare the wealth for both Mr. A and Mr. B.

At the age of 50 years, Mr. A will have an amount of roughly Rs. 1,65,00,000 while Mr. B will have an amount of roughly of Rs. 95,00,000.

Mr. A invested half the amount of Mr. B for lesser amount of time still he has much larger amount of wealth. The only difference being that Mr. A invested the money earlier. This is the power of time. With time, your money gets multiplied again and again.

Conclusion

I hope that I have given you a reason to learn investing. Give it a good amount of time. Becoming a skilled invester may take a few years of time and your skill will keep improving with practice. Also now that you are aware of the power of time, you should learn to invest properly as soon as possible. According to me, the best time would be when you are in college so that you can start investing when you join a job. However, if you have already graduated from college and you haven’t learnt anything about investing, there is no need to worry. Learn it now and start investing.

Warning: Don’t jump into investing without learning properly. You may land into a fatal accident.

Hence, keep learning new skills in life and keep thriving. Also, remember to add “Investing” into your skill set regardless of your background. You may be an engineer, a lawyer, a doctor or belonging to any other profession. The skill of investing is always going to help you in life. And you should learn it as early as possible.

Thank you for reading!